This was a function of a gradual economic growth stagnation in most major regions of the country.

But the Western Cape was a noticeable relative outperformer, consistently maintaining the highest percentage of commercial property tenants “in good standing” with their landlords regarding their rental payments over the past decade, through the post-2009 Global Financial Crisis period (according to TPN data).

By the 1st quarter of 2020, just prior to the impact of “hard” lockdown, the Western Cape’s percentage of tenants “in good standing” was 86.39%, compared to 79.49% in KZN and 76.27% in Gauteng.

Then came the massive weakening in tenant performance during the 2nd quarter COVID-19 lockdown period, and no region was spared the impact.

Yet the Western Cape managed to retain its relative advantage, its percentage of tenants in good standing recording 58.97%, sharply weaker than the prior quarter but still significantly above the 51.81% of KZN and the very weak 48.89% of Gauteng.

On the Residential Rental Tenant side of the market, the Western Cape has also shown a consistently higher percentage of tenants “in good standing” with their landlords over the past decade. Once again, though, recent years had seen a gradual deterioration in the “good standing” percentages in all major 3 provinces, but what was striking is that the pace of deterioration in KZN and Gauteng had been faster than in the Western Cape, the performance gap between itself and the other 2 thus widening.

The 2nd quarter unsurprisingly saw a major drop in all 3 regions residential tenant performance. But the Western Cape still emerged in the 2nd quarter as by far the relative outperformer.

In the 2nd quarter of 2020, TPN data showed the Western Cape’s percentage of tenants in good standing at 80.86%, while those of KZN and Gauteng were a noticeably lower 70.83% and 71.1% respectively.

Big 3 Provinces’ Key Commercial Property Sector Vacancy Rates.

Tenant performances aside, another indicator we regard as key in ascertaining a market’s ability to “hold up” when recession arrives is the average vacancy rate of the region.

MSCI half-yearly data, recently released, showed that in this regard, the Western Cape once again fares relatively  well at least in 2 out of the 3 major property Sectors.

In the 1st half of 2020, the Western Cape had the lowest average Retail Property Vacancy Rate, according to MSCI data, to the tune of 3.26%. KZN recorded a higher 4.5% while Gauteng had the highest rate of 5.76%. All 3 provinces’ vacancy rates had been on the rise in recent years though.

The relative picture was the same with regard to Office Space, the Western Cape having the lowest average vacancy rate of 6.71%, KZN with a higher 8.72% and Gauteng with a very high17.01% rate in the 1st half of 2020.

The one area where the Western Cape no longer had the best performing number was in the area of Industrial Property, where its average vacancy rate rose considerably in 2019 and registered 4.73% in the 1st half of 2020. Gauteng’s vacancy rate was higher at 5.89%, while KZN had a noticeably lower rate of 2.62%

Conclusion

In short, of the 3 major provinces, indications are that the Western Cape’s tenant population, both on the Residential and in the Commercial Property Sector, continued to outperform those of Gauteng and KZN during the 2nd quarter lockdown period, despite also weakening considerably as a result of the economic and financial impact of the lockdown.

This continues to point to a greater level of average financial strength amongst both the business and residential population in that province. That relative financial strength, we had previously believed, could enable the province’s property market to get through the severe COVID-19 recession slightly better off than the other 2 major provinces, and so far that appears to behave been the case.

Added to this, in 2 out of the 3 major property sectors (Office and Retail) it continued to have the lowest average vacancy rate as it approached 2020. These “less oversupplied” markets, too, should assist that part of the Western Cape’s property market at least to hold up its rental and property values better.

But this is not to say that the Western Cape won’t experience severe property market pressure. It will, given the magnitude of the 2020 recession that has unfolded. But it may come out of the recession in better shape than the other 2 major provinces.

Gauteng, on the other hand, looks to be the most vulnerable property market of the 3 major regions, having the weakest tenant performance in the Commercial Property Sector, and close to the weakest in Residential. In addition, this province has the highest vacancy rates in all 3 major commercial sectors, with its Office and Retail vacancy rates being the highest of the 3 provinces.